While metals and mining firms have taken a huge hit due to forex losses, profits of several blue-chip companies have also taken a knock in the second quarter of the current fiscal due to the higher cost of servicing foreign currency loans, unhedged exposure and increase in the cost of hedging. The rupee has plunged 14% so far in 2011, breaching the 52-mark for the first time since March 2009 and hitting a 32-month low on Monday.

Pharmaceutical major Ranbaxy reported a loss of over Rs 400 crore in the second quarter, its worst quarterly loss in nearly two-and-half years on the back of whopping forex losses in excess of Rs 600 crore. JSW Steel's forex losses rose to a staggering Rs 513 crore in the quarter. This was about 75% of its profit before interest for the period.

Losses due to the exchange rates also eclipsed the healthy operating performance of Tata Motors, according to analysts tracking the company. Tata Motors reported a loss of Rs 294 crore on revaluation of foreign currency borrowings in the second quarter. This was about 54% of its profit before interest. Bharti Airtel's net profit was dragged down by higher interest costs, including a forex loss of Rs 239 crore in the second quarter, analysts at Angel Broking said. Power Finance Corporation was among the companies worst hit by the currency swing and reported Rs 528.6 crore as forex loss, which was about 96% of its profit after taxes.

Indian companies took to the external commercial borrowings (ECB) route as interest costs soared following the record hike in rates by the RBI. Interest rates on ECBs were 7-9 % cheaper than loans taken here, prompting companies to this route to raise funds, say observers. However , the sharp appreciation of the dollar has caught them off-guard , making ECBs highly expensive.

Companies would have been better off if they had taken bank loans here, says Jagannadham Thunuguntla, head, research, SMC Global Securities. If the sharp rise in the greenback is taken into account , cost of servicing ECBs would be well in excess of 20% negating the gains of borrowing overseas, he says. Indian companies are estimated to have borrowed about Rs 1.5 lakh crore under the ECB route this year. It would be difficult to cover the losses as nobody would have factored such a steep fall in the rupee, says Kishor P Ostwal, managing director, CNI Research, an equities research provider.

Companies have to create MTM (mark-to-market ) provisions for their exposure to foreign currency loans. However , loans taken for working capital purposes alone would show up in the profit and loss account and those used for creating assets and capital expenditure would slip into the balance sheet, says Ostwal.

COSTLY CRASH

To hedge or not to hedge

Importers who chose to hedge against foreign currency receivables when the dollar fell to 52 in March 2009 were singed when the rupee bounced back to below 45 in August this year. Many have since chosen not to hedge, taking a hit during the present fall

Consumers may have to pay more

Indians probably pay more for the iPhone than buyers in any other country. Given that most imported goods are billed in dollars, Indian consumers will probably see the prices go up further

FIIs' dilemma

If the rupee continues to fall, foreign institutional investors will see the value of their investment shrink even if the sensex remains at the same level. Given that most FIIs do a valuation of their investment in Decemberend , it is unlikely that they will bring in money and take a valuation hit

What RBI can do...

Traditionally, RBI has stemmed rupee weakeness by selling dollars and relaxing FII guidelines. But now the problem is in the West and investors are willing to park funds at near zero interest rates rather than expose them to volatility in global markets. Now, the only option for RBI is to strategically intervene through a combination of measures in spot and forward markets

What the govt can do...

The government can reduce import demand by passing on the higher cost of depreciation to consumers. It can also attract foreign capital through policy reforms such as easing restrictions on FDI in retail and insurance

Fiscal deficit to widen

T he country's oil bill goes up with each paisa fall in the rupee. However, retail prices aren't increased as often. The difference is borne by the government and adds to the fiscal deficit

Govt may raise fuel prices

Every one rupee fall against the dollar reesults in the oil industry losing Rs 8,000 crore on an a nnualised basis if fuel prices are not raised. When W petrol prices were reevised last week, the ruupee was at 49.30. At current prices, the u nderrecoveries to the industry are pegged at Rs 1 1 ,30,000 crore. If the dollar weakens further, another fuel price hike is likely.